Investigating the Impact of Intellectual Capital on the Sustainable Financial Performance of Private Sector Banks in India

Round 1

Reviewer 1 Report

Summary

This study investigates the impact of intellectual capital on the sustainable financial performance of private sector banks in India. The rapid growth and transformation of the business environment have made intangible assets more important than physical and financial resources. Intellectual capital, represented by the company's innovation, experience, knowledge, customer relationships, and professional skills, is considered a key element in providing a competitive advantage and creating value.

In developed countries, several studies have already investigated the impact of intellectual capital on financial performance. The results have revealed that intellectual capital is a tactical resource that gives a firm value performance and competitiveness.

In developing countries like India, the literature on the link between firm performance and intellectual capital efficiency is less consistent. India, however, is a developing nation and needs to bring out and extend this knowledge capital to revitalize its economy.

Sustainable growth of any sector requires sustainable revenues to cover various operating costs. Therefore, to promote sustained, inclusive, and sustainable economic growth and full and productive employment (SDG's 8) for all, the Indian banking sector needs to invest more in the development of intellectual capital and its elements.

Intellectual capital has been explained in different aspects by different scholars. Some studies have expressed considerable consensus on the division of intellectual capital into three components, also known as the VAIC model: human capital, capital employed, and structural capital.

However, the VAIC model has limitations, to get over the limitations of the MVAIC model was developed, which adds relational capital to the previous elements.

Human capital is composed of employees' knowledge, skills, commitment, experience, expertise, professionalism, and intellectual abilities. All these elements can be used to achieve and increase the value of the organization.

Structural capital is represented by intellectual property and databases, such as trademarks, copyrights, innovations, and patents. It also includes infrastructure resources related to the organization's structure, culture, management system, policies, techniques, methodology, and firms’ operations that encourage human resources to create and use its knowledge.

Capital employed, composed of physical and financial capital, plays a key role in generating wealth for the organization. 

Relational capital is an organization's relationship with its stakeholders, such as suppliers, customers, creditors, marketing channels, shareholders, and government.

This study investigates the impact of intellectual capital on the sustainable financial performance of private sector banks in India. Unlike previous studies, this study first analyses the impact of the four components of intellectual capital on financial performance and then the influence of combined intellectual capital (measured by the MVAIC model) on bank performance. In addition, this study uses the panel data analysis, which is conducted in three different ways, with fixed effect, with cross-section random effect, and without fixed and random effect.

The authors conducted this analysis on a sample of 17 private sector banks in India. Data from the banks were collected for the period 2010-2021 by consulting both annual financial statements and the database of the Centre for Monitoring Indian Economy, Prowessiq.

The dependent variables of the econometric model employed are return on equity (ROE) and return on capital employed (ROCE).

In the two models analysing the impact of intellectual capital components on the bank's financial performance, the independent variables are structural capital, human capital, relational capital, and capital employed. In the other two models analysing the impact of combined intellectual capital on bank performance, the authors use the modified value-added intellectual coefficient (MVAIC). In addition, the authors also used three control variables: size, GDP, and leverage.

The results show that human capital and capital employed have a significant and positive impact on ROE, in contrast, relational capital has a significant negative impact on ROE.

In addition, relational capital and structural capital have a positive and significant relationship with ROCE.

Regarding the relationship between combined intellectual capital (measured by the MVAIC model) and financial performance (measured by ROE and ROCE), the results show that there is a negative relationship between MVAIC and ROE and a positive relationship between MVAIC and ROCE.

The results suggest that intellectual capital plays an important role in the creation of competitive advantage, value creation, and sustainable financial performance of private sector banks. So, India's private sector banks could improve their profitability by increasing investment in workforce knowledge and skills and balancing it with greater investment in tangible assets. According to the authors, these findings also offer practical and managerial implications for private sector banks. Because the study suggests that intellectual capital can play an important role in improving business performance and creating competitive advantage, managers should need to focus on the role of intellectual capital and invest in its various components. In addition, since relational capital is the component of intellectual capital that contributes the least to good financial performance, the authors suggest that private sector banks need to focus more on relational capital to keep regular contact with their stakeholders to create value for the banks.

The authors also noted that the investment of the Indian banks in intellectual capital is low compared with the other developing economies. For this reason, they suggest that policymakers in private sector banks encourage continuous improvement in these elements of intellectual capital to ensure competitive advantage in this information- and knowledge-driven era.

Comments

The study topic seems interesting. The article is well structured with a clear abstract, sufficient literature review, a clear research question and discussion of results, an appropriate method of investigation, and interesting practical and managerial implications.

Nevertheless, some changes are called for:

1.                  It is requested to adjust Figure 1 “Research framework. Source Authors Self-complied”. In particular, it is necessary to make readable the words within the diagram and reorder the placement of the arrows.

2.                  On page 6 and page 7 there are two tables both titled Table 1. Change the title and consequently change the numbering of all tables in the document.

3.                  Uniform the mode of presentation of tables and related comments. To promote clarity of presentation, it is suggested to choose whether to present the table first and then the related commentary or vice versa and to follow the same mode for the entire document (Example: on page 7 there is the commentary of Table 1 followed by Table 1, then there is Table 2 followed by the commentary).

4.                  Check all tables and standardize the font. Bold has probably been omitted for some words.

5.                  Is the Unit Root Test a paragraph or a sub-paragraph? How come it has not been numbered?

6.                  Check the years of references number: 16, 23, and 82:

-          reference number 16 should show the year 2000 instead of 2013;

-          reference number 23 should report the year 2021 instead of 2020;

-          reference number 83 should report the year 2017 instead of 2016.

7.                  Uniform the way references are written, i.e., always put the author's last name in full and the dotted name (e.g., references number 22-50-56-58-74-75-76-77 carry the author's first and last name in full). Also, if the references include the name of only two authors, choose whether to use "and" or "&" and always follow the same citation mode.

8.                  Check reference number 84, it seems to have been reported incorrectly.

Author Response

Respected Reviewer 

Please see the attachment 

Author Response File: Author Response.pdf

Reviewer 2 Report

The Authors present a study the impact of intellectual capital on the sustainable financial performance of the private sector banks in India. The research was carried out on the example of 17 banks of the private sector. Data were collected for the time period 2010 to 2021 from their annual financial reports. In India at that time were 22 banks in this sector operating. The intellectual capital include 4 elements: human capital (HC), structural capital (SC), relational capital (RC) and capital employed (CE), which were used as independent variables. Together with them, three control variables were used, i.e. Leverage, Size and Gross domestic product. As dependent variables were assumed capital employed (ROCE), and return on equity (ROE). The choice of variables can be considered correct.

The findings demonstrate that structural capital (SC) and relational capital (RC) have a direct positive and statistically significant association with assumed capital employed. Human capital (HC) and capital employed (CE) also exhibit a direct positive and statistically significant impact on return on equity. Further, combined intellectual capital (MVAIC) has a significant positive impact on were assumed capital employed but an indirect negative relationship with return on equity.

The study is interesting, with relevant data, but it needs to be sorted out.

The author uses many abbreviations in the work, e.g. human capital (HC), structural capital (SC), return on equity (ROE) etc. Yes, they are commonly used, they are also explained in the work. However, due to the large number, in the Reviewer's opinion, they should also be explained in the text of the work, and not only in the abstract. In addition, the author should use in the descriptions full names. This is especially true for conclusions and summaries. This needs to be improved at work.

Then in the text (line 35) four IC elements are listed: CE, RC, SC, and HC. Their order in the description is different (HC, SC...). It also does not agree with Figure 1. This introduces confusion and raises doubts in the reader. According to the reviewer, the order of the features mentioned in the content and in the drawing should be same. The author should organize it and consider the appropriate ranking, e.g. by characteristics importance.

When discussing figure 1, it is illegible and carelessly made. It needs to be corrected.

Another point concerns the bibliography. It is inconsistent with the journal's requirements. Needs to be improved.

In the sentence “As we all know that India is in a transformation stage from a developing to a developed economy, so it is necessary for the banking industry should have an effective and sustainable base”. I propose to remove. “As we all know that …”. This is a colloquial expression.

 

I think that the experiment is interesting, but that the manuscript do need to be refined.

Author Response

Respected Reviewer 

Please see the attachment.

Author Response File: Author Response.pdf

Reviewer 3 Report

1 - The whole article is based on the use of ancient and irrelevant literature - Of the 84 sources, only 5 refer to 2019-2022. This causes skepticism about the scientific novelty of the authors' results.

2 - The introduction needs to be revised and reduced. It is necessary to justify the relevance of the research topic, using sources and describing the events of 2022. Considering the world situation in the economic and political spheres - it seems especially important.

3- The literature review section was written but it felt quite general.

4 - The research design and methodology is not clear. The section is difficult to follow. The chosen methodology was not explained. This reviewer struggled to understand what type of analysis was carried out and why. Further, there is no reference to the literature on methodology or research method. Therefore, against this backdrop, this reviewer was unable to assess the quality of section results and section discussion which is the core part of this piece.

5 - Add the novelty of the results to the abstract (2 sentences).

6- Authors should better explain the criteria for selecting the research object and the limitations of applying the results obtained should be specified.

7 - Much more explanations and interpretations should be added to the result. It is suggested to compare the results of the present study with previous studies and analyze the results completely.

8 - Please compare the results of the present study with previous studies and analyze the results completely.

9 - The quality of the tables and figures should be improved. In addition, you should indicate the data sources under the tables and figures. Please cite sources under the tables and figures. If they were developed by the authors, indicate "developed by the authors".

10- The "Conclusion" section should be described from a scientific point of view.  Add it as follows:
- Major conclusions of the present study;

- comparison with other studies;

- Implications and explanation of findings;

- strengths and limitations;

- conclusion, recommendations, and direction for future research.

11 - The structure could be improved here and different points and arguments could be linked together better. Currently, different points are rather loosely connected and it is a bit difficult to figure out where the argument is going next.
To sum up, this piece lacks a coherent structure and original character. The applied methodology is unclear.

Author Response

Respected Reviewer

Please see the attachment file 

Thank you 

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

I have no more comments

Author Response

Dear Reviewer 

We are honored and thank you for appreciating our revised manuscript. It has been a learning experience acting upon your suggestions and improving our research in the field of intellectual capital.

Thank you 

 

 

Reviewer 3 Report

1-The article does not explore the concept and factors of the SUSTAINABLE FINANCIAL PERFORMANCE OF PRIVATE SECTOR BANKS IN INDIA.

2- Still, I request to specify clearly enough what scientific relevance and practical application you propose (concept, new model, methodology), which allows intellectual capital to influence the financial performance (F.P.) of the private sector banks (PSBs) in India.

3- I recommend that the authors revise the Limitations and Future Scope section, as it is insufficiently informative. See the logic of this section below:

Emphasize the significance of further research

There are no specific rules or guidelines for this part. However, since it is expected to be brief and informative, the following format is recommended.

Start this section by reflecting on the significance of the present study in brief. Answering questions such as:

• Whether the research deviated from its initial objectives?
• What was the original idea behind the research?
• From where was the inspiration drawn?

Answering such questions is important because the reader should connect to the idea of the research.

Limitations of the study

Furthermore, briefly explain the limitations of the study. This step proves significant for scholars who wish to address areas that can enrich the research topic further. The limitations can either be presented separately, in an independent section called “Limitations of the research”, or can be integrated within the future scope. Also, the limitations should be scalable and relatable, i.e. something that other researchers feel can be accomplished under different circumstances. This is also the key to setting recommendations for future studies.

Justify the future scope

Furthermore, provide justifications for the reasons why the mentioned areas have not been covered in the current study. Identify the probable bottlenecks other researchers might encounter while considering future research related to the topic. This will help them formulate an achievable or practically applicable plan for their own research, including the scope, aim and methodology.

Suggestions

Finally, the approach of the researcher becomes more direct. To be specific, some direct research suggestions should be given to other scholars for future studies. Be precise so that the reader is confident to undertake future studies in the suggested areas.

Answering the following questions can help:

• What should be explored by others?
• Why is it worth exploring?
• What can be achieved from it?
• Will the suggested study be relevant five to ten years down the line?
• How does it add to the overall body of the literature?

Author Response

Dear Reviewer 

Please see the attachment

Author Response File: Author Response.pdf

Round 3

Reviewer 3 Report

I have studied the authors' revisions.